The bad news seems to be getting worse each day. The businesses that survive will be the ones that act quickly.
The situation is changing so fast and the UK Government is trying to catch up.
Step by step process to see where you are
The overall objective needs to be to work out how to get back to profit. This means doing a weekly or monthly budget based on the new environment for your business. The issue of cash flow comes later.
The first issue is to establish what are your monthly sales going to be going forward? Not only will you have lost customers for good who will have ceased to trade but also current orders will be down.
The customers that you do keep could well have cash flow problems and so your trading terms may be extended. You do need to review credit limits. You may also need to agree in advance when exactly you are going to get paid. It is best to be clear.
Remember your debtors – a slow drip of money coming by standing order is better than no money at all. I am advocating this – business that keep trading need to pay you something. It can not all stop.
The second stage is to establish your overheads and what can be reduced. For example, will your landlord allow a short-term rent reduction? Usually, a sensible landlord will allow this for a short period as it is better than having empty premises. Business rates may be able to be reduced to nil in 20/21 if you qualify under the new UK Government business support rules.
Start with reviewing the written contracts of employment you have in place. You may need some legal advice. Make a list of all staff with start dates, rates of pay and normal hours.
If you can lay off or furlough employees you can use the new Job Retention Scheme which pays 80% of wages to £2,500pcm. This starts from 1st March 2020 and the first payments will be made at the end of April.
You do sadly need to consider if you should make redundancies if the downturn is permanent. You may also be asking your employees accept pay reductions for a while. We have clients who are suggesting a pay reduction of 40% for three months and then 20% for the next three months.
Overall, you need to see what costs can be saved and work out if you can get the overheads to be less than sales. If you can’t then you really do have a problem.
Third – you need to look at cash flow. Can you raise money to put into the business and can you make a claim of the new Government grants available? This includes the £10,000 for small businesses that previously qualified for Small Business Rate Relief and £25,000 for those with a rateable value below £51,000.
You can defer some costs by talking to suppliers about make smaller or delayed payments. In my experience suppliers would rather have something smaller each week or month than nothing at all. You can talk to HM Revenue and Customs about a time to pay agreement as well in order to defer PAYE and VAT.
The VAT due on sales made in the dates 20th March to 30th June can now be deferred until the end of 2020.
Self employed income tax payments due 31st July are also going to be deferred.
There is also a new UK Government backed Coronavirus loan scheme to be launched in weeks by the British Business Bank.
If all else fails…
A Company or Individual Voluntary Arrangement may be possible. This stops creditors winding you up and gives you a period of time up to 5 years to pay some money back and keeps the business going.
Administration may also be an option as a method to very quickly down size a business into a smaller more profitable form that is perhaps sold on to a new entity.
The only other solution is to close and liquidate. This does trigger the UK Government Redundancy Payment fund for employees who can then claim arrears of pay, notice pay, redundancy and unpaid holidays (subject to caps). There is nothing then to stop the directors starting a new smaller business and buying back the assets. This may seem morally wrong, but it is better to salvage something if that is all that can be done than nothing.
If you want some advice, please email me email@example.com